There are 3 states of significance in the currency market whose economy is closely tied up with commodities. These are Canada, the world’s 2nd largest exporter of oil; Australia, a major gold producer; and New Zealand, with a larger basket of commodity exports. The USD/CAD pair is maybe the most typical. With Canada being an exporter of oil and the usa being a large importer, a go down or up in the price of oil is probably going to affect this pair directly. It might be crazy to be trading USD/CAD without taking any notice of oil costs. In the same way, traders involved with the Australian dollar have to be aware of the possible impact of changes in the value of gold. NZD pairs nonetheless, are far more complicated due to the varied range of goods that New Zealand exports. The general commodity price index is the one to watch here. Naturally, even where there’s a robust industrial link to a specific commodity, the effect on currency costs is not always direct. Other things also affect the currency market.
Often, the currency price won’t react immediately. By identifying a trend in the price of oil, for example, traders can regularly enter the USD/CAD market before a reactive trend forming in the price of the currency pair. Here is where commodity foreign exchange trading can give traders a very valuable edge.